What to Expect From Web3 Gaming in 2023

The last two years in web3 have been loud — the roaring bull market in 2021 and the cacophony of bad news rattling through 2022.

Entering 2023, we believe a few final aftershocks of the FTX collapse will reverberate through the market, but the damage is primarily done. Over the last year, the crypto market has massively delivered, bad actors have been exposed, and weak companies have failed.

Despite the market turmoil, builders have continued to build, and the development of web3 infrastructure and applications has continued to accelerate. Institutions are continuing to adopt web3 technologies at an accelerating pace, and this adoption is increasingly broadening to all institutions — including financial institutions, consumer brands, gaming companies, and social platforms.

While 2021 and 2022 were loud, we believe 2023 will be relatively quiet on the surface as web3 falls out of the daily headlines. In this quiet, the excellent deployment cycle of web3 technology will accelerate. At the application layer, we expect to see the most striking adoption of web3 in stablecoin-enabled global payments, established brands offering digital goods, and gaming companies more deeply embracing web3.

Game studios integrate NFTs into their existing games.

In 2023, we’ll continue to see web2 game studios push deeper into web3 and enter what we consider “Stage 4” of web3 gaming adoption.

Stage 1: Monitoring and internal experiments (e.g., Ubisoft’s Entrepreneurs Lab accelerator program, which has admitted web3 gaming studios).

Stage 2: Invest in web3 gaming start-ups to obtain an even more profound understanding of how web3 enhances web2 gameplay and the underlying technology (e.g., Ubisoft’s and Take-Two Interactive’s investment in Horizon Blockchain Games).

Stage 3: Web2 game studios create web3 gaming subsidiaries, often in partnership with crypto-native companies and investors (we can’t publicly disclose any of these, but we saw quite a few of them in 2022).

Stage 4: Established web2 game publishers will incorporate elements of web3 — specifically NFTs and crypto payments — directly into their web2 games (not via stand-alone subsidiaries). Just like the change in language from “crypto” to “web3” brought in more non-crypto native folks, the difference in terminology from “NFTs” to “digital collectibles” should help traditional game studios introduce NFTs directly into games with fewer gamers' backlash.

While we do expect traditional game developers to proceed with caution (remember that Ubisoft called the Ghost Recon NFTs “Digits” and still received backlash), the adoption of “digital collectibles” in games with corresponding secondary liquidity is not going to take the ten years that Free-to-Play took to start seeing adoption.

We’re confident we’ll look back at 2023 as one of those critical years that ultimately helped web3-enhanced games enter the mainstream.

Gaming interoperability emerges (in unexpected ways).

Said no one ever: “I want to take my Peely skin out of Fortnite and drop it in GTA!”

We’re not certain how the web3 gaming “interoperability” narrative ever became the foregoing, but it did. In 2023, we expect to see the *real* benefits of web3 interoperability and composability begin to emerge in gaming, which will showcase how adding programmable digital items to games enhances gameplay.

Imagine that when a gamer logs into a game with a wallet — which serves as that gamer’s reputation/identity — the game will recognize and rank the crypto assets (including NFTs) already owned by the user and provide the user with in-game assets commensurate with the type and quality of assets in the wallet.

For example, if you have a rare RTFKT CloneX in your wallet, you will be issued/rewarded with a similarly ranked asset for the game you’ve connected to that you can now use to level up your gameplay.

Over time, web3 item matching will expand to more generalized customer segmentation based on wallet holdings (e.g., are you a whale, degen, or newcomer) and port status across games (similar to how frequent travel programs sometimes recognize status from other brands).

Savvy Games Group makes a big splash. In late September 2022, Savvy Games Group (“SGG”) announced that it would invest ~$38bn in games through 2030 to propel Saudi Arabia to the forefront of the global gaming and esports ecosystem. SGG is funded by Saudi Arabia’s Public Investment Fund (“PIF”), which is estimated to manage $500bn and, in 2021, invested ~$3bn in Activision Blizzard, Electronic Arts, and Take-Two Interactive.

PIF’s allocation to SGG is the most significant in its 50-year history, demonstrating the importance Saudi Arabia places on the growth of games. This is unsurprising, considering 89% of the Saudi population currently plays games, the highest per person globally.

SGG previously acquired significant stakes in Nintendo, Capcom, Nexon, and Embracer Group. With the additional $38bn, SGG plans to establish 250 game companies in Saudi Arabia, creating 39k jobs and bringing GDP contribution from the gaming industry to ~$13.3bn by 2030. Overall, SGG’s investment in gaming immediately propels it into the same category as gaming titans Tencent, Sony, Nintendo, Microsoft, and NetEase. So, one may ask, how will SGG differentiate itself from these other monsters in gaming?

We predict that SGG isn’t just going to be a collector of random web2 gaming assets. Instead, we believe that SGG will be much more thoughtful in putting its capital to work by leaning hard into an area where it can become “the player” (instead of one of many players) – web3 games. As a result, SGG has a once-in-a-lifetime opportunity to create new value and innovation sorely needed in gaming by methodically building out a web3 gaming ecosystem.

If SGG keeps hiring well and determines it wants to be the leader in web3 gaming, it will have more influence on the future of gaming through web3-enabled games than many are anticipating. Tomorrow, we will analyze the world of Digital Goods and NFTs, which, we believe, will continue to gain adoption during 2023.

Closing thoughts

It's pretty clear that web3 gaming has a future, and with big players like Ubisoft and Savvy Games Group investing in this industry, chances are slim. However, this won't go anywhere; every project seems to adopt the NFT strategy, where gamers own their items and capitalize on this.

If you want to learn more about web3 gaming terms, you can check it out here

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